Washington Budget Report: Mar. 22, 2011

In This Issue...

Obama, House Should Follow Senators’ Lead

With unsustainable deficits projected over the coming decade, President Obama and the House of Representatives should embrace a call from 64 senators of both parties to “engage in a broader discussion about a comprehensive deficit reduction package.”

The need for such a package was underscored on Friday by a new analysis of the President’s budget by the Congressional Budget Office. It projected that under the proposed budget, deficits from 2012 through 2021 would total $9.5 trillion, or 4.8 percent of GDP.

In addition, the Government Accountability Office has released updated fiscal projections, warning that the numbers “underscore the need to begin addressing the long-term federal fiscal outlook.”

In a letter to President Obama, the 64 senators, led by Michael Bennet (D-CO) and Mike Johanns (R-NE), called the recommendations of his fiscal commission "an important foundation to achieve meaningful progress on our debt."

The House should also commit itself to serious discussions based on the commission's sweeping recommendations. Up until now, the fiscal debate in Washington has centered on the narrow question of finishing appropriations bills for 2011. A government shutdown was avoided last week when Obama signed a new continuing resolution that cuts $6 billion and funds federal agencies through April 8.

Rivlin Explains Medicare Reform Plan

Alice Rivlin of the Brookings Institution focused on the importance of Medicare reform in testimony to both the Senate and House budget committees last week, suggesting that the program should shift to a "premium support" model beginning in 2018.

Under such a system, people could choose to stay in traditional Medicare although they might have to pay more, or they could enter a Medicare exchange with the voucher.

Rivlin, who served on President Obama’s fiscal commission and co-chaired the Bipartisan Policy Center’s Debt Reduction Task Force with former Sen. Pete Domenici, told the House committee that a premium support system -- in which beneficiaries could chose to participate -- would provide incentives for efficient delivery of services while controlling the rate of growth of Medicare costs. She also outlined a premium support plan she has drafted with committee chairman Paul Ryan (R-WI).

In the Senate testimony, Rivlin joined with Domenici to explain the premium support model and other entitlement reforms recommended by their task force. They stressed that the looming fiscal crisis offers an opportunity to make the government operate more fairly and efficiently.

Retirement Savings Fall Short

With the aging of the population expected to strain government resources in the coming decades, it is crucial for Americans to save substantial amounts of money for retirement. Unfortunately, many fail to do so.

Only about six in 10 workers report that they or their spouses are currently saving, according to this year’s Retirement Confidence Survey. And many of these people are saving very little – less than $1,000 for 29 percent of the survey respondents. For 56 percent, the total value of their households’ savings and investments – excluding primary homes and defined-benefit plans – is less than $25,000.

Seventy-four percent of workers now say they expect to continue working in retirement, but that is about three times the percentage of retirees who say they are actually still working in paid jobs.

The annual random survey is sponsored by the Employee Benefit Research Institute, the American Savings Education Council and Mathew Greenwald & Associates.

Debits & Credits

How to Whip the Deficit: On the House floor last week, Democratic Whip Steny Hoyer called for “deficit-reducing tax reform” that would include lower rates while eliminating many loopholes that are popular with special interests. He argues that defense and entitlements should be considered as well.

Tilting the Tables: Lawmakers in both parties are pushing super-majority voting requirements that would make fiscal reforms more difficult. Some Democrats have proposed a two-thirds majority requirement for cuts to Social Security, and some Republicans are discussing a balanced-budget amendment that would include a two-thirds requirement for tax increases.